Home loans typically have a long repayment period, and even a small reduction in your EMI (equated monthly instalment) can be magic over the loan tenure. If you're going to take a new loan or already have an existing loan, there are practical means of reducing your EMI without giving up on your objectives.
Opt for a higher tenure
One of the simplest ways to reduce your EMI is to increase the repayment tenure. While a higher tenure means paying more interest in the long term, it lowers the monthly outgo immediately, giving you more freedom to manage other expenses. Banks offer home loans with tenures of even 30 years to young borrowers. You can always repay the loan early once your cash flows become better without affecting your existing monthly outlay.
Imagine a home loan balance transfer
If your current lender is charging you a higher rate of interest, you can switch to another lender offering lower interest through a home loan balance transfer. This move will reduce your EMI significantly, especially if you do it early on in the tenure of your loan when the interest component is highest. Keep in mind that this facility might incur processing charges or additional fees, so calculate the net benefit before you switch.
Make a larger down payment
If you are yet to avail a home loan, making more as down payment can reduce your borrowed amount and hence your EMI. While most banks insist on at least 10% to 20% as margin money, spending more from your own pocket not only reduces your interest outgo but also earns you a better chance of availing the loan at improved rates.
Prepay as and when you can
If you receive an annual bonus, investment returns, or some other windfall, invest it in making prepayments on your home loan. Small lump sum prepayments reduce the outstanding loan amount, and that reduces your EMI or the loan repayment period. All major lenders waive prepayment penalties on floating rate loans, so this is an interest-saving process with low cost.
Negotiate with your lender
Such borrowers are often able to go back to their bank to re-negotiate the interest rate in case they possess a good credit history and repayment record, especially if the market rates have fallen after availing of the loan. Some lenders also do so for existing customers at their request or after in-house consideration, which reduces your EMI without benefiting from a balance transfer.
Finally, paying down your EMI can provide you with much-needed relief in your monthly expenses and allow you to plan better for other goals. Whether you do it by extending your loan term, refinancing, or prepaying tactically, these smart home loan strategies can ease your load in the long term. Always weigh the long-term interest impact against short-term gains and choose the one that is most suitable to your goal.
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